Planet & Profit

The “currency manipulator” label represents one of the most politically charged accusations in international trade. While the U.S. declined to officially designate China as a manipulator in its latest 2025 report, the underlying tensions over yuan devaluation, export competitiveness and global trade imbalances remain acute—with significant spillover effects for India’s export competitiveness and currency management strategy.

---

1. What Makes a Currency Manipulator?

Under U.S. Treasury guidelines, a country qualifies as a currency manipulator if it meets three criteria:

• Trade surplus with the U.S. exceeding $15 billion annually
• Global current account surplus above 3% of GDP
• Persistent net foreign exchange purchases in one direction totaling more than 2% of GDP over 12 months

The designation triggers diplomatic engagement and potential trade sanctions, making it a potent economic weapon.reuters

2. China’s Historical Dance with the Label

China was last designated a currency manipulator in August 2019 during Trump’s first presidency, amid escalating trade tensions. The label was dropped five months later as part of bilateral trade negotiations. The accusation centered on Beijing’s alleged intervention to keep the yuan artificially weak, thereby boosting export competitiveness at the expense of U.S. manufacturers.treasury

3. 2025: A Cautious Restraint

In its June 2025 semi-annual report, the U.S. Treasury refrained from labeling China a currency manipulator despite mounting depreciation pressures on the yuan. However, it singled out China for its “lack of transparency around its exchange rate policies,” warning that this opacity wouldn’t prevent future designation if evidence emerges of yuan manipulation.business-standard+1

The decision reflects pragmatic diplomacy: Trump’s recent “very positive” call with Xi Jinping and ongoing trade negotiations likely influenced the restrained stance, even as reciprocal tariffs of 104% on Chinese goods have intensified currency pressures.reuters

4. Yuan Under Pressure: The 2025 Dynamics

The yuan has faced significant headwinds in 2025:

• Tariff Impact: Trump’s reciprocal tariffs—reaching 104% on some Chinese goods—have created the highest tariff burden on China in decades, pressuring Beijing to consider currency depreciation as a competitive response.economictimes+1
• Economic Slowdown: Goldman Sachs projects the new tariffs will reduce Chinese GDP growth by at least 0.7% in 2025, while Barclays downgraded its forecast to 4.0%.economictimes
• PBOC’s Dilemma: The People’s Bank of China faces a choice between maintaining currency stability (which imposes “large economic costs”) and allowing controlled depreciation to offset tariff impacts.economictimes

5. India Caught in the Crossfire

India’s economic interests are directly affected by China’s currency policies:

A. Export Competitiveness Concerns

China and India compete in key export categories—machinery, electronics, pharmaceuticals, chemicals, and textiles. A weaker yuan could make Indian exports less competitive, potentially costing market share in third-country markets.reuters+1

B. RBI’s Strategic Response

Sources familiar with the Reserve Bank of India’s thinking indicate the central bank may “tolerate a sharper depreciation of the rupee if China lets the yuan weaken.” This reflects a pragmatic approach to maintaining relative export competitiveness.reuters+1

C. Trade Deficit Implications

India’s $94 billion trade deficit with China in 2024 could widen further if yuan depreciation makes Chinese imports even cheaper, deepening India’s import dependence.economictimes

6. The Manipulation Mechanics

China’s currency management operates through multiple channels:

• Daily Central Parity: The PBOC sets a daily reference rate for the yuan, allowing 2% fluctuation on either side
• State Bank Interventions: Currency operations have shifted from the central bank to state-controlled commercial banks, obscuring direct manipulation evidencebrookings
• Capital Controls: Restrictions on capital flows help maintain exchange rate stability despite market pressures

Research by the Rhodium Group suggests the PBOC has intervened persistently over two decades, despite repeated promises to allow greater market determination.rhg

7. Global Implications and Market Dynamics

The yuan’s trajectory affects global currency stability:

• Asian Currency Anchor: Goldman Sachs notes that “USD/Asia would follow the direction of the broad dollar,” but the dollar-yuan rate now provides “an important anchor for Asian currencies”economictimes
• Capital Flow Reversals: A weaker yuan amid higher U.S. yields creates incentives for capital flight from emerging markets, including India
• Commodity Impact: Yuan depreciation affects global commodity demand, given China’s outsized role in raw material imports

8. The Transparency Challenge

Unlike other major economies, China lacks clear communication about its exchange rate objectives and intervention policies. This opacity:

• Fuels Suspicion: Markets and policymakers struggle to distinguish between market-driven movements and policy-driven interventions
• Undermines Credibility: Two decades of unfulfilled reform promises have eroded trust in Chinese commitments to market-based exchange ratesrhg
• Complicates Coordination: G20 commitments to avoid competitive devaluation become harder to monitor and enforce

9. Looking Ahead: Strategic Implications for India

India’s policy framework must adapt to persistent yuan volatility:

A. Enhanced Monitoring

The RBI has become “increasingly focused on the yuan exchange rate,” recognizing its systemic importance for Indian trade and investment flows.economictimes

B. Flexible Response

Rather than rigid rupee defense, India may adopt a more responsive approach—allowing controlled depreciation when competitive pressures demand it.

C. Diversification Imperative

Reducing dependence on China through supply chain diversification and alternative trade partnerships becomes more urgent as currency volatility adds another layer of uncertainty.

---

Conclusion

The “currency manipulator” designation remains a powerful but double-edged tool in international economic diplomacy. For India, China’s currency policies create both challenges and opportunities—from export competitiveness concerns to strategic positioning in global value chains. As geopolitical tensions persist, India’s ability to navigate these currency crosscurrents will be crucial for maintaining economic stability and growth momentum in an increasingly complex global environment.